Rethinking Guidance in an Increasingly Uncertain Global Market

Rethinking Guidance in an Increasingly Uncertain Global Market

by Victoria Sivrais, Partner January 22nd, 2019

4 Tips for Telling Investors What They Most Want to Hear Now
Saying there is a level of uncertainty hanging over the current earnings season might be the understatement of the year. As executives prepare to announce year-end results and give their projections for the year ahead, they’re worried. They’re specifically concerned about US trade policy, what will come from the China talks, and the impact of trade wars and tariffs. They don’t know when the government shutdown will end or how long new IPOs will be stalled. And then, there’s all the volatility in the market, with half of experts sure we are in a recession and the other half saying we are simply experiencing a much-needed correction which is almost over.

What’s a company to do?

Some have chosen to completely rethink guidance practices, while others are approaching it much more conservatively, often at the risk of sandbagging. While many companies are likely to deliver or have delivered strong results, there is an overwhelming nervousness about projecting future earnings and performance when so much is in flux around them.

Investors, for their part, are not in the dark. They understand all the issues at play. But, while it’s true that they do not expect you to give guidance for every possible outcome of economic conditions, they still want and need information and guidance. Limiting transparency in an uncertain environment is likely a grave mistake which could have a serious ramification on stock price.

4 Critical Issues Guidance Should Address Now
Instead of staying silent, consider addressing the issues that are top of mind for investors in the current climate. You can answer qualitative questions for your investors that will satisfy their need for information and give them some of the color around your investment thesis that they crave.

In a recent survey of institutional investors, we uncovered the most pressing questions they have right now. By tailoring your comments around the following four issues, and giving as much context as you can, you can keep your investors informed and engaged, even in these uncertain times:

1) Talk about your customers. Investors want to get a feel for the overall sentiment of your customer base. What are they telling you—in both words and actions—that illustrate their confidence levels and/or any areas of concern? Are they nervous and pulling back? Or is everything status quo?

2) Share your management team’s specific viewpoint on the year ahead. With so much happening around the world and close to home, your executives’ outlook for the year ahead may be different than it was six months ago. Share how your view of 2019 has changed in light of recent events. Investors don’t expect you to know exactly what the future holds, given all the variables. But they do want to know your take on things, your perceptions, and how you plan to manage through uncertainty.

3) Be clear about assumptions. What assumptions are you building into your guidance? Be as straightforward and upfront as possible about the potential circumstances and assumptions on which any guidance is based, and include both the high end and bottom end for these assumptions in your communications.

4) Talk about Plan B. Specifically what cost levers can you pull if things were to change quickly for the negative? Even if you’re anticipating the best, investors want to know that you’re planning for the worst. Again, no one can predict all potential outcomes. But investors want to know you have a viable plan in place for responding quickly to control costs if the need arises.

Make the most of all your communications opportunities.
Issuing quarterly or annual guidance is an important opportunity to engage both current and potential shareholders and help them more deeply connect with your overall financial narrative. Despite uncertainty, don’t give into the temptation to pull back. Instead, tell investors what you can to the best of your ability and give as much color as possible. For more ideas and advice on how to make earnings reports and comments—and all of your strategic investor communications—as impactful as possible, see our Strategic Investor Relations page, or contact us today to start a conversation.

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